Blu-ray is emerging as a holiday hero for Hollywood as the film industry grapples with the rise of online video and a persistent slump in its most profitable source of revenue: DVD sales.

A combination of the weak economy, online piracy and low-cost rental and streaming services has driven continued declines in DVD sales this year, but strong growth in Blu-ray—premium-priced discs that offer a higher-quality home viewing experience—suggests consumers still have an appetite for physical home-movie products.

The trend has led some to question whether the electronics industry's embrace of Internet-connected television sets and set-top devices has come too early, leaving consumers confused by the myriad of technology choices and content limitations of online video. That prospect has fueled concerns that the industry might not be allowing its Blu-ray business to live up to its potential.

"Blu-ray is not going to live up to its older brother—the DVD—but if people don't give up on physical products prematurely, it still has the potential to have a decent run," said Russ Crupnick, entertainment analyst with NPD Group, a market-research firm. "There's a much better selection on Blu-ray than on video-streaming services, and people are far more comfortable with the format, so I think the industry is in danger of moving faster than consumers want to on these new online platforms."

Sales of Blu-ray movies were up 75% year-to-year at the start of the holiday shopping season, according to Nash Information Services, and are expected to nearly double for the full year. Blu-ray is on track to be a $2 billion business this year, while the DVD business—down 13% through the first three quarters of the year—is expected to shrink to $8 billion.

NPD Group said that 13% of U.S. households had a Blu-ray player at the beginning of the holiday season, and that number could rise to 20% early next year, driven by a proliferation of Blu-ray players available for under $100 in this holiday season.

"Blu-ray is on the brink of becoming really mainstream," said Bruce Nash, head of Nash Information Services, who expects it to grow into about one-third of the home video market. "If you look back five years, people would buy DVDs on their way home on a Friday in order to watch a film—maybe only once. With Blu-ray, people are a lot more selective. They'll watch those one-time movies on-demand through their cable provider or they'll wait to rent it through Netflix, but big movies like 'Inception,' 'Avatar' and 'Toy Story 3' can be successful on Blu-ray."

On Thursday, Amazon.com Inc. was selling the three-disc extended collector's edition of "Avatar" on Blu-ray for $24.99, while the DVD version was priced at $15.49.

Studios are bolstering their Blu-ray offerings by selling titles in value packs that also include a DVD version of the film and a digital file that can be transferred to a laptop or mobile device.

"Blu-ray is driving the high-def revolution in the living room," said Mike Dunn, president of Twentieth Century Fox Home Entertainment. "There's developing digital delivery methods that are getting a bit of attention, and for good reason as they represent a significant opportunity for growth, and Blu-ray is compatible with all of them. The format is the gateway to digital in the most affordable and easily adaptable way."

I agree that people still want to own their movies on the highest resolution and picture format such as Blu-ray.
Until it is affordable to have a good large storage media server that you can buy and download HD movies to at full bit rate and resolution I will keep purchasing movies I like on Blu-ray.